Tax credit repayments hit poorest families hardest

Britain's poorest families were hit hardest by government demands to repay tax credits, according to official figures released by HM Revenue & Customs.

Almost 200,000 families in the lowest 10% on the income scale were forced to repay £3,400 after they were overpaid tax credits in the year to April 2005. The repayment demand is more than a hundred times the amount levied from the most affluent 10% of families. Revenue & Customs, which runs the tax credits system, demanded they repay £30 on average. Thousands of families are still repaying overpaid tax credits, causing hardship and in many cases forcing them into debt.

Liberal Democrats obtained the figures after a series of parliamentary questions. Work and pensions spokesman, David Laws, said: "This is further damning evidence that Gordon Brown's tax credit policy is hurting the most vulnerable in society. It is unacceptable that the poorest people receiving tax credits are expected to repay such large amounts. The chancellor is giving with one hand and snatching it away with the other. It is obscene that the most vulnerable in society are being forced to return huge sums of money they cannot afford due to the ludicrous complexity of tax credits and government incompetence.

"The tax credit system was meant to be Gordon Brown's great revolution to improve the lives of poorer families, but instead it has plunged hundreds of thousands of people further into poverty and debt."

A series of reports by the public accounts committee and the treasury select committee have condemned Revenue & Custom's handling of the tax credit system. A report by parliamentary ombudsman Ann Abraham singled out overpayments as a cause of hardship that was, in the main, a result of errors by Revenue & Customs. Officials have continued to pursue families to repay cash that was subsequently found to have been overpaid.

In July it was revealed that the level of fraud and errors in tax credit payments was twice as high as previously estimated and cost £1.17bn in its first year of operation. The National Audit Office concluded that the unacceptably high level of mistakes and criminal activity in the system forced it to qualify approval of HM Revenue & Customs' accounts.

Revenue & Customs said reforms to the system would eliminate many of the demands to recover overpayments. It has emerged that the reforms will increase the £16bn bill for funding tax credits by a further £300m by 2010 and increase entitlement to tax credits by £500m this year.

Tory shadow paymaster general, Mark Francois, said the reforms would only solve part of the problem. "This is yet another example of how Gordon Brown's over-complicated tax credits system is costing the taxpayer. This new change, which will cost the Treasury an additional £850m to implement over the next four years, will still only reduce the number of overpayments by a third."